CIBIL Score News: India's small and medium enterprises typically struggle to get formal loans due to a lack of credit history or poor documentation. But with the credit bureau CIBIL revamping its MSME credit scoring system, it could become easier for most such companies. Reforms are intended to make it easier for lenders to judge the creditworthiness of borrowers, especially those who have had to endure momentary financial hardship in recent years.
The new score, the CIBIL MSME Rank (CMR), takes into account a wider range of data, such as pre- and post-pandemic repayment history, and rates companies on a 1 to 10-risk scale. Borrowers could find themselves with an improved credit score that reflects their true repayment history—making them more likely to use loans at favourable terms.
Improved Credit History Now Considered
One of the most significant changes in the new structure is the inclusion of a longer credit history—36 months. Earlier, the lender used to take into account a shorter duration of financial performance. This provides MSMEs who may have shown better payment behaviour with time an update.
For example, a firm which did badly in the pandemic but recovered incrementally after that may now be perceived positively. This would increase their likelihood of acquiring new loans or even more favourable interest rates.
A More Transparent Risk Scale
The new score currently scores the borrowers from 1 to 10, with 1 being the least credit risk and 10 being the highest. This makes it easier for lenders to spot borrowers who are more likely to pay on time.
For small businesses, this system of simple ranking can cut down so much of the ambiguity in loan approval. A superior score can give quicker decision disbursements, whereas others with risk scores can know where they are and play to improve their credit health.
More Opportunities For Individuals With Small Credit Histories
Most small enterprises—especially new small enterprises—typically do not have lengthy financial histories or extensive paperwork. Thus, they struggle to be granted formal credit. The improved CMR system considers both business and individual credit histories and puts more weight on payment behaviour over time.
This means even if a firm does not have a long history, making timely payment of small loans or credit lines will now positively affect their score. Formal credit, inaccessible to most micro and small enterprises, now makes access to it possible.
Good Borrowers Likely To Get Better Loan Terms
For MSMEs with good payment records, the new scoring system can help in getting better loan terms—such as lower interest rates or higher loan amounts. There is a more data-driven view of a borrower's performance by lenders nowadays, making them less risky and more willing to extend credit.
This also prompts companies to exercise financial discipline because they will directly impact borrowing ease in the future.
What MSME Borrowers Can Do Now
To benefit from this update, MSMEs need to keep monitoring their CIBIL MSME Rank and maintain proper management of all their current credit accounts. They need to avoid defaults and maintain a good mix of credit and timely payment of dues. Since it also considers trends over months and years, a consistent exhibition of good credit behaviour is the mantra.
For those businesses that had been disadvantaged by the pandemic or other disruptions, this shift provides an opportunity to rebuild lenders' trust—without being judged based on past failure only. In the long run, this can introduce more MSMEs into the formal credit system, growing and stabilizing the economy.
